Last week I read an article about the US Department of Agriculture's decision to parachute poison mice into treetops to kill tree snakes in Guam. The tree snakes killed all of the birds on the island and the USDA is concerned the snakes may be able to migrate to Hawaii. This reminiscent of all of the times a species was introduced to wipe out another, and it went terribly wrong. The article moved through a series of curiously inappropriate connections in my mind and got me thinking about digital object sales. I cannot tell you why, but I a promise you it is much more of a curse than a blessing. Our perception of digital objects and willingness to pay for them is evolving much more quickly than our understanding of the impact of the market and I am afraid they will get a foothold in our world before we know how to control them. Oh yeah, don't worry about the poison, it is Tylenol which is just as useful for killing black tree snakes as it is for killing a headache.
Remember when it was really nutty to think someone would pay money to buy an game object? If you don't have to remember and still think buying a digital t shirt to put on your avatar is kind of lame, keep reading, you are proving my point. We are evolving, and it is a good thing. DVD racks are ugly and building book shelves is surprisingly expensive.
If you think back in the dark recesses of your minds to the pre-kindle and pre-iPod days we devoted space in our house to collections of analog bits. Records, CDs, DVDs and books were all displayed in the common areas. We were buying the ability to access the content whenever we pleased, but also created and satisfied and secondary, and often primary need to display. Your collection became an indicia of taste. You may have even been driven to put books or DVDs out you never read or watched and hidden others to avoid the notion your taste may be odd or worse yet, mainstream. You may think I am talking about porn, but I was thinking Grease - record and DVD, Bee Gees and Abba. Digital access changed all that and is in the process of changing it more.
Devices like the iPod and the Kindle provided us with the access to the content we wanted and sharable playlists and friend notifications from applications like Spotify and Pandora allow us to display our good taste to people who would have had to come to our home or read our t shirts in the past. Now we know the only sticks we really need from the bundle are access and display, not physical possession - and this is changing everything. The evolution of a mindset based on holding physical embodiments of our media (or as George Carlin called it "stuff") to one of access to utility is driving growth of the digital object market at exponential rates.
The concept of physical possession separated from ownership is not new. We applied it for years to the two most expensive purchases most people ever make in their lives, our homes and our cars. I have possession of my home. I can do whatever I want with it and invite whomever I please to access it. I can also block anyone I please from access. Feels a lot like ownership. But my ownership is represented and dependent upon some analog bits in a file cabinet in a city called Norwalk, California. I have never been to Norwalk, California. But if anyone questions my ownership, or I want to sell my home, I need to put a new piece of paper, with my signature verified by an independent third party, in a different file in Norwalk, California. I have possession and apparent ownership, but I do not have possession of the indicia of ownership. The same can be said of my car. I have the right to use and possess, but the actual indicia of ownership is on some analog bits somewhere in Sacramento, California. Since the dawn of property ownership, we accepted possession as something separate from indicia of ownership. The digital model is simply a reversal of the model.
If I am playing League of Legends, I am able to buy skins, champions and other objects that will appear to other players in the game. The objects I buy have no impact on my power or abilities in the game. In the early days this sounded strange to non players - ok maybe it still sounds strange today - but the migration to accept a digital champion in place of an action figure is no different than having music on an iPod instead of on my shelf. Like my music collection, I have utility of my objects in the game, so I get to enjoy looking at objects that please me. Also like my music collection, I receive a social benefit by the display of status associated with the object ownership. Like a house or a car - in reverse - the object exists on a far away server, probably not in Norwalk or Sacramento, but indicia of ownership resides with me. It actually makes more sense.
This evolution which started with music and is spreading like wildfire through the universe of games. In 2002 The New York Times saw the ability tell digital objects as newsworthy. Those wacky gamers were willing to pay money for a collection of words in a game called Gemstone. But the practice was not limited to Gemstone and what started as an underground market quickly grew into an accepted practice and then even started to be woven into the fabric of certain games. It is not stopping there. Zynga took the people who unknowingly accepted the music "purchased" from the iTunes store as fungible with CDs and got to pay for digital objects in their games, thereby paving the way for broad acceptance of microtransactions. So broad, the purchase of game objects, many persistent, is the not only acceptable, but the leading method for profiting from mobile and on line games. This leads to a concern I raised in a post five years ago which remains unanswered.
On the one hand we want the consumer to accept the purchase of the game object, as they do the purchase of a song from the iTunes store, or a coffee cup in the real world. On the other, we are not ready to give them enough of the stick. They are missing the access to relevant information pertaining to value stick. The rights and remedies side of digital object ownership is lagging distantly behind the willingness to exchange value to own them. In the original post I wrote:
My corporations professor, Hugh Friedman, taught us how difficult it is to actually spot a security, but he gave us the definition contained in the United States Code. "SECURITIES - An investment in an enterprise with the expectation of profit from the efforts of other people." Here is another definition I found on line: "Securities are documents that merely represent an interest or a right in something else; they are not consumed or used in the same way as traditional consumer goods. Government regulation of consumer goods attempts to protect consumers from dangerous articles, misleading advertising, or illegal pricing practices. Securities laws, on the other hand, attempt to ensure that investors have an informed, accurate idea of the type of interest they are purchasing and its value." The definition is intentionally broad and is meant to apply to a lot of things, to protect a lot of people. Interests in condominiums, farm animals, land and oil rights, have all been determined to be securities. The definition is the foundation of the Securities Act of 1933, sometimes called the "truth in securities law" and the Securities and Exchange Act of 1934, which established the Securities and Exchange Commission and sets out filing requirements and trading regulation. Both were established in response to the events leading to the stock market collapse of 1929. Prior to these acts, anyone could sell stock to anyone and there were no reporting obligations or restrictions on insider trading or proxy solicitations. In other words, it was a lot like buying and selling game objects today.We know a share of General Motors is a security. General Motors must comply with certain reporting requirements to maintain its right to allow ownership interests to be exchanged in the public market. While I may not be buying my game object with the expectation of profit - although many do - the price I am willing to pay is based on the information available to me at the time of payment. Factors like scarcity, utility, restrictions and duration of use are all material in my decision and willingness to pay. Most significantly, whether the game be in existence tomorrow.
Last month Zynga shut down 12 apps. One of them Petville, still had one million monthly active users, and before at one point had 43 million. The value of every object purchased evaporated, without warning, overnight. How many people were still purchasing digital objects after Zynga knew the game was going to be shut down? I am not pointing my finger only at Zynga, Star Wars Galaxies sold objects right up until the game was shut down. Shutting down a game is simply a fact of life. Not letting consumers know it will happen is not.
These issues are very exciting . . . . for lawyers. It is kind of like a full employment act because very hard issues mean a lot of work to resolve which means funding for childrens' college educations. This is the second post in a row that I leave without an answer. I throw it out there because I want to raise the issue and let people know we may be getting ahead of ourselves - again.